Jeff Cutler

Egg producers seeking new balance in a post-COVID market

By Matt Reese

When many people think of egg production, the packages of shelled eggs in the grocery store immediately come to mind. The reality, though, is egg producers supply a diverse array of egg-based products to meet very specific industry needs and consumer demands. The radical and rapid shift in the way consumers were buying eggs back in March caused food chain-wide turmoil.

Cooper Farms, based in western Ohio, certainly faced challenges when the nation changed forever in March of 2020.

“We all saw back in March a big spike in demand at the grocery store and as an industry we did our best to respond to that, but we saw a lot of empty shelves during that time. That had a very brief market impact on shell eggs. At the same time the food service industry was shut down. During that time, grocery demand spiked around 50% and restaurants went to zero. It hit us all of the sudden and there was a bit of a lag of about 2 or 3 weeks before we started to really realize what was happening in the supply chain. The industry tried to react as fast as they could,” said Jeff Cutler, general manager egg division at Cooper Farms. “There was a bottle neck. Had there been enough retail grading capacity it would have been helpful to level the surge on the supply side and the backing up of that supply, but that was not the case.”

The egg industry in general is divided into multiple segments: graded shell eggs for retail in grocery stores; food service graded (different packaging); farm pack (nest run) eggs that are not graded and go to processers; liquid whole egg, yolks or egg whites for food processors; and liquid egg products for the food service industry. Each different end product requires different packaging to best serve the intended end users. Grocery shoppers typically do not want bulk packaging and retail egg cartons are not practical for food service or processors. 

“The surge also hit our packaging suppliers. The packaging industry responded the best they could. Where they were operating 5 days a week or 6 days a week, they started up 7 days a week and did everything they could for their capacity to meet our demand,” Cutler said. “They were running almost 24-7 and they still could not meet demand for retail packaging. Normal packaging lead times might be 2 to 4 weeks and today it is more like 8 to 12 weeks.”

The packaging crunch continues to be an issue for overall demand. During the summer and fall, eggs are often featured as specially priced items to attract shoppers to retail stores. This results in a typical demand boost. The challenges in the packaging sector, though, are limiting those marketing options for retailers.

“Retailers normally come in seasonally for summer time featuring and the packaging folks cautioned retailers not to do that,” Cutler said. “If you go to the grocery store, the majority of what you see is store brand. Even the store brand premium products like cage-free have been telling packagers they want to do what they normally do during summer slowdowns, but the packaging people cannot keep up with demand for the special feature packaging the stores want to offer. That hurts industry demand for eggs.”

In addition, restaurant and food service demand has come back to some degree, but not near levels prior to March.

“Restaurants are still not at full capacity in general. Everything with food service is down. It went to zero and is back up 40% to 60%, depending who you ask. We are sitting back and waiting for that business to come back. Between 25% and 30% of our volume as an industry goes toward food service and now it is a matter of waiting for the consumer to come back,” Cutler said. “As an industry we are looking at back to school as another seasonal event that increases demand. That is up in the air right now. Different counties in different states are doing different things. We normally see a bump in September from that. Cruise ships are a big consumer of egg products. That is wiped out right now. Hotels are huge. People aren’t traveling right now. What will be the new normal after COVID? Resorts, Disney, places like that are huge for breakfast buffets. It has been a challenge.”

Cooper Farms has largely been focused on the retail side of consumer demand in recent years and was fairly well-positioned for the massive shift in March.

“Fortunately for us, the volume of food service business that we had was very small, so we were not impacted as much as other companies might have been,” Cutler said. “We have more of a retail focus on our shell egg business on the graded side of our eggs. In the last 10 years we have added two grading facilities and can do retail for shell eggs. Then we added CW Egg Products — that is a breaking facility. They sell liquid egg to processors to make other egg products like premium ice cream, cookies, baking industries, salad dressing, and other items. So Cooper Farms is selling a lot of private label retail eggs, liquid egg from CW, and farm pack eggs that are not graded and go to other processers. On the liquid side of our business we are geared for food manufacturers that are also producing products for the retail side.”

Though there are certainly still supply chain challenges, the retail sector has been strong.

“Retail has returned to a more seasonal pace. Food processors have also been as busy as they can be. The baking industry, specifically cakes, has come to a halt, but cake mix and cake ingredients have been flying off the shelves in the grocery stores. Everything is flying off the retail shelf in every category, including the egg product side,” Cutler said. “But we still have a large layer inventory that is producing eggs and that is not in balance with the demand. The industry was forced to adjust layer production because there was no home for their eggs and it is still not in balance yet because of food service.”

At Cooper Farms, shifts were made to adjust to the situation since March.

“We are doing everything we can to control our supply balance,” Cutler said. “The nest run business we have with sales of eggs to other processors has been impacted because other processors were not buying eggs. We were able to shift some of that internally. We are still pushing for more retail business and the liquid egg sales moving forward. We also took the opportunity to donate eggs to food banks. That was a good situation for all involved.”

Looking to the future, many significant questions loom for Cooper Farms and the egg industry as a whole.

“Every issue before COVID was accelerated with COVID. Online purchases, pickup at groceries and labor challenges — we were looking at those before COVID,” Cutler said. “Operationally it has been a challenge to provide a safe work environment while keeping everyone’s spirits up while keeping up with the balance of changing demand. Those issues have accelerated, but this also accelerated solutions.”

In recent years, the egg industry has been in the process of shifting away from conventionally produced eggs and nudging toward specialty eggs including cage-free and organic. This future of this trend in the post COVID world is a big unknown.

“Prior to COVID there was big consumer interest in some state to go cage-free. How was the industry going to balance that demand for that market while still focusing on the current market? With COVID, and food service demand stopping, the industry had to take a fast look at their supply balance and it accelerated decisions. During the panic buying, every egg on the shelf was being sold. Shoppers were saying, ‘I don’t normally buy organic but now I am going to buy whatever I can find.’ There are finite supplies of cage-free and organic. Crisis buying changes things and you get whatever you can get,” Cutler said. “We don’t know yet if the industry is going to come back to where it was pre-COVID. I think if you look at the long game with certain consumer groups demanding cage free or organic, their focus is not going to shift. With demand as it was in January, some would argue the industry still had more production than was needed because of the expansion of cage-free production without a reduction in regular production. We don’t know how that will work out with the balance of things after COVID.”

What does the remainder of 2020 and beyond hold for egg demand? “Eggs are part of a perpetual supply chain that is a process that cannot be stopped,” Cutler said. “It changes almost daily as far as where demand is or isn’t. The biggest challenge moving forward is trying to meet the new balance of internal and external demands while striking the new balance of supply.”

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